Future Of Gold Prices
A lot of people have recently been flocking to commodities as a result of the recent draw downs of the equity markets, with the gold future becoming a well-liked commodity to invest in. So why in this time of economic turmoil is gold sky rocketing to historically high levels?
A gold future is not only seen as a hedge against inflation, however it is also seen as a hedge against softening foreign currency values, in this recent case it really is the declining Euro. Europeans are investing in commodities like gold and silver since, very frankly, it looks as if the Euro will not have a value in a year’s time.
But, before you go jumping into trading gold future contracts at these historically high costs, you have to take a step back and recognize that the gold future contract is at an unprecedented price. Just how much greater can it go? How can you predict the price of a gold future contract accurately without having becoming able to analyze historical data?
One of the best, and most successful, ways to approach the current gold future marketplace is to sell options. Once you sell an choice, the alternative purchaser pays you a premium for that alternative. Now, when an choice expires worthless, the choice seller (that is us!) keeps the premium that the option buyer had paid.
You might be asking yourself: “What specifically is the benefit of this strategy?”. The benefit of selling gold future possibilities is probability. The Chicago Mercantile Exchange estimates that practically 80% of choices expire worthless. As an choice seller, you might be able to use the “decaying asset” attribute of an alternative to your advantage.
Also, whenever you sell an option, you pick a point inside the marketplace (also referred to as your strike price) where you believe the marketplace Will not go. This is a lot easier than trying to predict where a marketplace WILL go. In short, when you are able to pick a point within the market where you think the cost Will not go:
1. The futures contract can move away from that price.
2. The futures contract can move sideways.
three. The futures contract can even move against that cost, so long as the underlying price doesn’t touch the strike cost upon expiration.
Now, obviously, when you sell a gold future choice you’ll find inherent risks. Whenever you sell an choice, you assume the very same risk as should you bought or sold a naked futures contract. But, option prices will normally move slower than underlying future costs, which gives a trader far more latitude to exit a position inside the case that the market moves sharply against them.